The Reserve Bank of Australia (RBA) raised its cash rate to 4.25% today. GDP growth should be strong this year despite the withdrawal of stimulus measures, while core inflation remains above target. Policy rates are still below neutral and we continue to expect that the cash rate will reach 5.00% by end-2010 and will then head higher still next year. This is in line with the markets which expect the cash rate to hit 5.25% in 12 months’ time.
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